Morningstar | Astra Posts Solid 4Q Led by New Cancer Drugs, and the 2019 Outlook Is Strong
AstraZeneca reported solid fourth-quarter results ahead of both our and consensus expectations and offered a strong outlook for 2019, which will likely support a minor fair value estimate increase. Despite the expected increase, we continue to view the company as slightly overvalued with a high valuation not fully supported by the growth potential. Importantly, in the outlook, the company is reducing its dependence on asset sales in 2019, as Astra's recently launched drugs continue to ramp well and patent exposure fades. Also, several of the new drugs are focused in oncology where pricing power is strong, helping overall margins. Astra's ability to launch new drugs to offset patent losses further supports our wide moat rating for the firm.In the quarter, next-generation drugs posted strong gains, supporting total product sales growth of 8% year over year, a rate we expect will slightly grow over the next two years. The new drugs largely focus on cancer treatments that are well positioned for further growth. In particular, Tagrisso (10% of product sales) grew 98% as the new first-line indication in EGFR mutated lung cancer is expanding the drug's eligible patients by almost 3 times. Also, Imfinzi (5% of sales) is growing in Stage III lung cancer, generating $262 million of almost all new incremental sales versus the prior-year quarter. With limited competition for both drugs in their key settings, we expect these drugs will drive long-term growth, helping wean the company off asset sales that it needed to bridge the gap between historical patent losses and new product sales. However, this weaning will likely reduce the full growth potential of the company over the next two years. Longer term, the company is largely focusing on drug development in oncology, respiratory, and cardiometabolic diseases. While the oncology development looks well positioned, the hurdles for strong pricing power in respiratory suggest this focus may not be as fruitful.
For a complete review of Astra's pipeline and currently marketed portfolio, please see "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."
AstraZeneca is a holding company. Through its subsidiaries, Co. operates as a biopharmaceutical company engaged in discovering, developing, manufacturing and commercializing its pipeline of small molecule and biologic prescription medicines, including targeted business development through collaboration, in-licensing and acquisitions. Co. is focused on three main therapy areas: Oncology, Cardiovascular and Metabolic Diseases, and Respiratory. Co. is also selectively active in autoimmunity, infection and neuroscience. In addition, Co. works across small molecules, oligonucleotides and other drug platforms, as well as biologic medicines.
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